Lufthansa not in talks with Etihad over stake - sources

By Peter Maushagen

FRANKFURT (Reuters) - Germany's Lufthansa is not in talks about Etihad Airways taking a stake in the German airline, two sources familiar with the matter said on Tuesday, denying an Italian newspaper report that said it was.

"A financial stake is out of the question at the moment," one source, who is familiar with Lufthansa's plans, said. A source familiar with state-owned Etihad also said Abu Dhabi would not want to pay for a stake in Lufthansa.

Il Messaggero earlier reported, without citing sources, that managers from both companies have for weeks been examining the possibility of Etihad buying a 30-40 percent stake in Lufthansa through a sale of new shares to the Abu Dhabi state-owned airline, as a precursor to a merger.

The report sent Lufthansa's share price up by over 6 percent earlier on Tuesday before closing up 4.3 percent at 11.81 euros.

Media speculation has swirled around Etihad and Lufthansa in recent months as Etihad grapples with two loss-making European airlines in which it owns minority stakes - Alitalia and Air Berlin.

Lufthansa and Etihad last month signed a code-sharing deal linking up their route networks and said they would look at further cooperation after Lufthansa agreed to lease 38 crewed planes from Air Berlin.

The first source said Lufthansa was talking to Etihad, but about more codesharing and catering cooperation.

There have also been media reports that Italian shareholders in Alitalia are keen for Lufthansa to invest in the Italian carrier, which is working on a fresh turnaround plan, along with speculation that Lufthansa could take on more of Air Berlin.

However, Lufthansa executives have repeatedly said in recent weeks that they have their hands full integrating the Air Berlin planes into its operations as well as taking over Brussels Airlines.

Analysts reacted with scepticism to the report, citing foreign ownership rules governing international traffic rights, and questioning what the benefits for Lufthansa would be. Barclays analysts described it as "implausible".

In Europe an airline must be majority-owned by EU investors in order to maintain its traffic rights under international air service agreements.

Lufthansa is currently almost 69 percent owned by German investors but 13 percent is in the hands of U.S. investors and a further 9 percent is owned by other nationalities.

In addition, if Etihad wished to buy more than 30 percent of Lufthansa, it would have to make an offer for the company as a whole according to German takeover rules.

Etihad's local rival Qatar Airways has built up a 20 percent stake in British Airways-owner IAG by purchasing shares on the open market. That has boosted links between Europe and the Asia-Pacific region. Credit Suisse said Lufthansa, though, already had joint ventures with Singapore Airlines, Air China and All Nippon Airways covering the region.

However, greater cooperation with Lufthansa could help Etihad, especially given the growth of Qatar Airways, CAPA-Centre for Aviation senior analyst Will Horton said.

"The rapid growth of Qatar Airways and its future expansion will make it harder and costlier for Etihad to stay relevant on its own - everything else aside," he said in an emailed comment.

(Reporting by Peter Maushagen in Frankfurt, Stanley Carvalho in Abu Dhabi; Additional reporting by Agnieszka Flak in Milan, Victoria Bryan in Berlin and Alexander Cornwell in Dubai; Editing by Katrin Jones and Greg Mahlich)